EXCLUSIVE: Romney Invested Millions in Chinese Firm That Profited on US Outsourcing 11JUL12 & Romney’s Bain Capital invested in companies that moved jobs overseas 21JUN12

HERE'S a big surprise, mitt romney lying about his roll in outsourcing American manufacturing jobs. The truth about romney, outsourcing and bain capital from Mother Jones and the Washington Post.....

The GOP candidate decries China poaching US jobs. But at Bain he held a large stake in a Chinese company that did just that.

—By David Corn

© Joe Burbank/Orlando Sentinel/MCT/ZUMAPRESS.com

Last month, Mitt Romney's campaign got into a dustup with the Washington Post after the newspaper reported that Bain Capital, the private equity firm the GOP presidential candidate founded, invested in several US companies that outsourced jobs to China and India. The campaign indignantly demanded a retraction, claiming that these businesses did not send jobs overseas while Romney was running Bain, and the Post stood by its investigation. Yet there is another aspect to the Romney-as-outsourcer controversy. According to government documents reviewed by Mother Jones, Romney, when he was in charge of Bain, invested heavily in a Chinese manufacturing company that depended on US outsourcing for its profits—and that explicitly stated that such outsourcing was crucial to its success.

More MoJo coverage of Mitt Romney:

• The Mystery of Romney's Exit From Bain
  
• Romney Invested in Medical-Waste Firm That Disposed of Aborted Fetuses, Government Documents Show
  
• Romney Tax Tips: 10 Ways to Stiff the IRS
  
• Mitt Romney's Long History of Misremembering His Past
• Get-Rich-Quick Profiteers Love Mitt Romney, and He Loves Them Back
  
• How Romney Fibs—and Gets Away With It

This previously unreported deal runs counter to Romney's tough talk on the campaign trail regarding China. "We will not let China continue to steal jobs from the United States of America," Romney declared in February. But with this investment, Romney sought to make money off a foreign company that banked on American firms outsourcing manufacturing overseas.
On April 17, 1998, Brookside Capital Partners Fund, a Bain Capital affiliate, filed a report with the Securities and Exchange Commission noting that it had acquired 6.13 percent of Hong Kong-based Global-Tech Appliances, which manufactured household appliances in a production facility in the industrial city of Dongguan, China. That August, according to another SEC filing, Brookside upped its interest in Global-Tech to 10.3 percent. Both SEC filings identified Romney as the person in control of this investment: "Mr. W. Mitt Romney is the sole shareholder, sole director, President and Chief Executive Officer of Brookside Inc. and thus is the controlling person of Brookside Inc." Each of these documents was signed by Domenic Ferrante, a managing director of Brookside and Bain.

The SEC filings do not reveal how much Romney initially invested in Global-Tech (which is now known as Global-Tech Advanced Innovations). But Brookside first acquired 748,000 shares at a time when Global-Tech was mounting an IPO at $19 a share. If that was the purchase price Brookside paid, then Romney's firm originally invested $14.2 million in the company.
At the time Romney was acquiring shares in Global-Tech, the firm publicly acknowledged that its strategy was to profit from prominent US companies outsourcing production abroad. On September 4, 1998, Global-Tech issued a press release announcing it was postponing completion of a $30 million expansion of its Dongguan facility because Sunbeam, a prominent American consumer products company and a major client of Global-Tech, was cutting back on outsourcing as part of an overall consolidation. But John C.K. Sham, Global-Tech's president and CEO, said, "Although it appears that customers such as Sunbeam are not outsourcing their manufacturing as quickly as we had anticipated, we still believe that the long-term trend toward outsourcing will continue." Global-Tech, which in mid-1998 announced fiscal year sales of $118.3 million (an increase of 89 percent over the previous year), also manufactured household appliances for Hamilton Beach, Mr. Coffee, Proctor-Silex, Revlon, and Vidal Sassoon, and its chief exec was hoping for more outsourcing from these and other American firms.
The Romney campaign and Bain Capital have insisted that Romney departed Bain in February 1999 to head the troubled 2002 Winter Olympics in Salt Lake City and had no involvement in the private equity firm's deals after that point—a contention that has been challenged by the Obama campaign. But the Global-Tech Appliances transactions occurred long before Romney jetted off to Utah.

At the time Romney was acquiring shares in Global-Tech, the firm publicly acknowledged that its strategy was to profit from prominent US companies outsourcing production abroad.

Brookside downsized its Global-Tech holdings later in 1998. An SEC filing submitted on December 21, 1998, reported that the Bain affiliate now controlled only 4.63 percent of the company's shares. But Brookside was sharing its stake in Global-Tech with Sankaty High Yield Asset Investors LTD—a Bermuda-based corporation of which Romney was the "the sole shareholder, a director, and President." That is, Romney had split his Global-Tech holdings between two of his various business entities. (The SEC filing doesn't indicate why he did that.)
Sankaty is a story in itself. It was recently the focus of an Associated Press investigation that reported that Sankaty "is among several Romney holdings that have not been fully disclosed" and that there is a "mystery surrounding" Sankaty. Reporting on this Romney entity, Vanity Fair noted that "investments in tax havens such as Bermuda raise many questions, because they are in 'jurisdictions where there is virtually no tax and virtually no compliance,' as one Miami-based offshore lawyer put it." With Sankaty, Romney was using a mysterious Bermuda-based entity to invest in a Chinese firm that thrived on US outsourcing.
In early 1999, Romney's investment in Global-Tech expanded again. An SEC report filed on March 25, 1999, stated that Brookside and Sankaty at this stage owned 9.11 percent of the firm's stock. Romney was still listed as the sole shareholder and president of both Brookside and Sankaty.
By this point, according to the open-to-question account offered by Bain and the Romney campaign, Romney no longer had any involvement in Bain deals. But the series of SEC filings show active Brookside and Sankaty trading in Global-Tech Appliances while Romney fully controlled these firms. The two Romney companies repeatedly changed their ownership stake in this Chinese firm, which was not shy about its dependence on outsourcing. In its 2001 annual report, Global-Tech noted that US outsourcing was essential to its prospects: "Household appliance companies are focusing on their primary strengths of marketing and distribution, while increasingly outsourcing product development and manufacturing…Our ability and commitment to develop new and innovative, high quality products at a low cost has allowed us to benefit from the increased outsourcing of product development and manufacturing by our customers."
In August 2000, Brookside and Sankaty sold their interest in Global-Tech, according to the SEC documents. With these filings disclosing minimum details about Romney's investment in Global-Tech, there is no telling how much money he made—or lost—on the deal.
A spokeswoman for Bain says that the company will not comment on the Global-Tech investment or provide any additional details about this deal. A Romney campaign official would not address the issue of Global-Tech profiting from US outsourcing, but this Romney aide maintains that this deal was nothing other than a routine investment in a foreign company: "[I]t's my understanding that while Brookside is a part of Bain Capital, it is not a private equity vehicle. Brookside makes passive investments in public stock. They don't control or manage the companies they invest in. Brookside had a small ownership stake (9.11%) in Global-Tech…while Romney was there. If owning shares in a foreign company is somehow wrong, President Obama is guilty as well." (The Romney campaign points out that Obama's personal holdings include an investment in a Vanguard 500 Index retirement fund that contains shares in a handful of foreign companies.)
In recent weeks, Romney's involvement in outsourcing has become a contentious campaign issue. Late last month, the Obama campaign launched ads that accused Romney of being a "corporate raider" who "shipped jobs to China and Mexico" and slammed him as an "outsourcer in chief." The Romneyites cried foul, pointing to neutral fact-checkers who criticized the ads, and asserted that Obama was trying to distract from bad economic news. And the Romney campaign, pushing back on the Post story, maintained that the newspaper missed the difference between outsourcing and offshoring. This week, Romney declared that Obama was the real "outsourcer-in-chief," insisting that the president funded "energy companies, solar and wind energy companies that end up making their products outside the United States." (The New York Times immediately debunked much of Romney's attack, and the Washington Post's "Fact Checker" column awarded four Pinocchios to an Americans for Prosperity ad that in April made a similar claim about Obama and green-jobs outsourcing.)
Romney's Global-Tech deal adds a new dimension to the debate over Romney and outsourcing. Whether or not he was at the helm when Bain invested in US firms that did or did not ship jobs overseas, Romney was in command when a company he owned and controlled bought a large stake in a Chinese venture that counted on American companies sending manufacturing—and that means jobs—to China. These days, Romney rails against China for swiping American jobs and proclaims, "For me, it's all about good jobs for the American people." But when there was money to be made by acquiring a chunk of a Chinese company that aimed to displace American manufacturers (and American workers), Romney's patriotism did not interfere with the potential for profit.
Research assistance: James Carter

David Corn

Washington Bureau Chief

David Corn is Mother Jones' Washington bureau chief. For more of his stories, click here. He's also on Twitter and Facebook. RSS | Twitter

If You Liked This, You Might Also Like...

• The Mystery of Romney's Exit From Bain

  Now there's a debate over when the GOP presidential candidate left his private equity firm—and what it means.

• Romney Left Bain Later Than He Says, Documents Show

  The big takeaway from David Corn's Monday-morning bombshell.
  http://www.motherjones.com/politics/2012/07/bain-capital-mitt-romney-outsourcing-china-global-tech 

  Romney’s Bain Capital invested in companies that moved jobs overseas

  By Tom Hamburger

  Mitt Romney’s financial company, Bain Capital, invested in a series of firms that specialized in relocating jobs done by American workers to new facilities in low-wage countries like China and India.
  During the nearly 15 years that Romney was actively involved in running Bain, a private equity firm that he founded, it owned companies that were pioneers in the practice of shipping work from the United States to overseas call centers and factories making computer components, according to filings with the Securities and Exchange Commission.
  While economists debate whether the massive outsourcing of American jobs over the last generation was inevitable, Romney in recent months has lamented the toll it’s taken on the U.S. economy. He has repeatedly pledged he would protect American employment by getting tough on China.
  “They’ve been able to put American businesses out of business and kill American jobs,” he told workers at a Toledo fence factory in February. “If I’m president of the United States, that’s going to end.”
  Speaking at a metalworking factory in Cincinnati last week, Romney cited his experience as a businessman, saying he knows what it would take to bring employers back to the United States. “For me it’s all about good jobs for the American people and a bright and prosperous future,” he said.
  For years, Romney’s political opponents have tried to tie him to the practice of outsourcing American jobs. These political attacks have often focused on Bain’s involvement in specific business deals that resulted in job losses.
  But a Washington Post examination of securities filings shows the extent of Bain’s investment in firms that specialized in helping other companies move or expand operations overseas. While Bain was not the largest player in the outsourcing field, the private equity firm was involved early on, at a time when the departure of jobs from the United States was beginning to accelerate and new companies were emerging as handmaidens to this outflow of employment.
  Bain played several roles in helping these outsourcing companies, such as investing venture capital so they could grow and providing management and strategic business advice as they navigated this rapidly developing field.
  Over the past two decades, American companies have dramatically expanded their overseas operations and supply networks, especially in Asia, while shrinking their workforces at home. McKinsey Global Institute estimated in 2006 that $18.4 billion in global information technology work and $11.4 billion in business-process services have been moved abroad.
  While the export of jobs has been disruptive for many workers and communities in the United States, outsourcing has been a powerful economic force. It has often helped lower the prices that American consumers pay for products and created a global supply chain that has made U.S. companies more nimble and profitable.
  Romney campaign officials repeatedly declined requests to comment on Bain’s record of investing in outsourcing firms during the Romney era. Campaign officials have said it is unfair to criticize Romney for investments made by Bain after he left the firm but did not address those made on his watch. In response to detailed questions about outsourcing investments, Bain spokesman Alex Stanton said, “Bain Capital’s business model has always been to build great companies and improve their operations. We have helped the 350 companies in which we have invested, which include over 100 start-up businesses, produce $80 billion of revenue growth in the United States while growing their revenues well over twice as fast as both the S&P and the U.S. economy over the last 28 years.”
  Until Romney left Bain Capital in 1999, he ran it with a proprietor’s zeal and attention to detail, earning a reputation for smart, hands-on management.
  Bain’s foray into outsourcing began in 1993 when the private equity firm took a stake in Corporate Software Inc., or CSI, after helping to finance a $93 million buyout of the firm. CSI, which catered to technology companies like Microsoft, provided a range of services including outsourcing of customer support. Initially, CSI employed U.S. workers to provide these services but by the mid-1990s was setting up call centers outside the country.
  Two years after Bain invested in the firm, CSI merged with another enterprise to form a new company called Stream International Inc. Stream immediately became active in the growing field of overseas calls centers. Bain was initially a minority shareholder in Stream and was active in running the company, providing “general executive and management services,” according to SEC filings.
  By 1997, Stream was running three tech-support call centers in Europe and was part of a call center joint venture in Japan, an SEC filing shows. “The Company believes that the trend toward outsourcing technical support occurring in the U.S. is also occurring in international markets,” the SEC filing said.
  Stream continued to expand its overseas call centers. And Bain’s role also grew with time. It ultimately became the majority shareholder in Stream in 1999 several months after Romney left Bain to run the Salt Lake City Olympics.
  Bain sold its stake in Stream in 2001, after the company further expanded its call center operations across Europe and Asia.
  The corporate merger that created Stream also gave birth to another, related business known as Modus Media Inc., which specialized in helping companies outsource their manufacturing. Modus Media was a subsidiary of Stream that became an independent company in early 1998. Bain was the largest shareholder, SEC filings show.
  Modus Media grew rapidly. In December 1997, it announced it had contracted with Microsoft to produce software and training products at a center in Australia. Modus Media said it was already serving Microsoft from Asian locations in Singapore, South Korea, Japan and Taiwan and in Europe and the United States.
  Two years later, Modus Media told the SEC it was performing outsource packaging and hardware assembly for IBM, Sun Microsystems, Hewlett-Packard Co. and Dell Computer Corp. The filing disclosed that Modus had operations on four continents, including Asian facilities in Singapore, Taiwan, China and South Korea, and European facilities in Ireland and France, and a center in Australia.
  “Technology companies, in particular, have increasingly sought to outsource the business processes involved in their supply chains,” the filing said. “. . . We offer a range of services that provide our clients with a one-stop shop for their outsource requirements.”
  According to a news release issued by Modus Media in 1997, its expansion of outsourcing services took place in close consultation with Bain. Terry Leahy, Modus’s chairman and chief executive, was quoted in the release as saying he would be “working closely with Bain on strategic expansion.” At the time, three Bain directors sat on the corporate board of Modus.
  The global expansion that began while Romney was at Bain continued after he left. In 2000, the firm announced it was opening a new facility in Guadalajara, Mexico, and expanding in China, Malaysia, Taiwan and South Korea.
  In addition to taking an interest in companies that specialized in outsourcing services, Bain also invested in firms that moved or expanded their own operations outside of the United States.
  One of those was a California bicycle manufacturer called GT Bicycle Inc. that Bain bought in 1993. The growing company relied on Asian labor, according to SEC filings. Two years later, with the company continuing to expand, Bain helped take it public. In 1998, when Bain owned 22 percent of GT’s stock and had three members on the board, the bicycle maker was sold to Schwinn, which had also moved much of its manufacturing offshore as part of a wider trend in the bicycle industry of turning to Chinese labor.
  Another Bain investment was electronics manufacturer SMTC Corp. In June 1998, during Romney’s last year at Bain, his private equity firm acquired a Colorado manufacturer that specialized in the assembly of printed circuit boards. That was one of several preliminary steps in 1998 that would culminate in a corporate merger a year later, five months after Romney left Bain. In July 1999, the Colorado firm acquired SMTC Corp., SEC filings show. Bain became the largest shareholder of SMTC and held three seats on its corporate board. Within a year of Bain taking over, SMTC told the SEC it was expanding production in Ireland and Mexico.
  In its prospectus that year, SMTC explained that it was in a strong position to meet the swelling demand from other manufacturers for overseas production of circuit boards. The company said that communications and networking companies “are dramatically increasing the amount of manufacturing they are outsourcing and we believe our technological capabilities and global manufacturing platform are well suited to capitalize on this opportunity.”
  Just as Romney was ending his tenure at Bain, it reached the culmination of negotiations with Hyundai Electronics Industry of South Korea for the $550 million purchase of its U.S. subsidiary, Chippac, which manufactured, tested and packaged computer chips in Asia. The deal was announced a month after Romney left Bain. Reports filed with the SEC in late 1999 showed that Chippac had plants in South Korea and China and was responsible for marketing and supplying the company’s Asian-made computer chips. An overwhelming majority of Chippac’s customers were U.S. firms, including Intel, IBM and Lucent Technologies.
  A filing with the SEC revealed the promise that Chippac offered investors. “Historically, semiconductor companies primarily manufactured semiconductors in their own facilities,” the filing said. “Today, most major semiconductor manufacturers use independent packaging and test service providers for at least a portion of their . . . needs. We expect this outsourcing trend to continue.”
  
  Research editor Alice Crites contributed to this article.
  http://www.washingtonpost.com/business/economy/romneys-bain-capital-invested-in-companies-that-moved-jobs-overseas/2012/06/21/gJQAsD9ptV_print.html 

   

Democrats say Mitt Romney failed to disclose offshore company in Bermuda 10JUL12

mitt romney is digging his own grave on this issue. The nation is in recession, there are a lot of people still struggling, and romney defends the 1% as job creators that should not be subjected to higher taxes. The perception is what he is really doing is just protecting the rich, including himself, from paying their fair share in taxes, especially with the discovery of romney's overseas bank accounts and corporate holdings in Bermuda, the Cayman Islands and Switzerland. Here is PolitiFact's ruling on romney's corporate Bermuda holdings.....

Says Mitt Romney "has a corporation in Bermuda (but) failed to disclose that on seven different financial disclosures."

Robert Gibbs on Sunday, July 8th, 2012 in an interview on CNN's "State of the Union"

Democrats say Mitt Romney failed to disclose offshore company in Bermuda

Share this story:

In the Democratic playbook, the more attention paid to Mitt Romney’s wealth, the better. Over the past few days, many Democrats questioned whether Romney used offshore holdings to dodge U.S. taxes and pressed him to release more of his personal financial information. Obama campaign senior adviser Robert Gibbs took the occasion during CNN’s State of the Union to say, "Nobody knows why he has a corporation in Bermuda, why he failed to disclose that on seven different financial disclosures."

We wondered if Gibbs had his facts right. Does Romney currently have a stake in a Bermuda corporation? And did he fail to disclose it seven times?

Reporting by the Associated Press and Vanity Fair teed this up. Both news organizations explored one of Romney’s overseas accounts, Sankaty High Yield Asset Investors, Ltd. The firm is described in SEC filings as "a Bermuda corporation wholly owned by W. Mitt Romney." (For more details, check out the AP's interesting account.)

In his 2010 tax return and his 2011 estimated filing, Romney includes Sankaty High Yield Asset Investors, Ltd. The beginning balance is pegged at $10,432. He and his wife Ann are the sole owners.  According to the Associated Press, Romney ran his investments in other Bain Capital deals through this offshore corporation.

Democrats have pounced on the issue. Offshore holdings might be perfectly legal, but they also might paint Romney as one of the super-rich who may be using an offshore tax shelter.

Romney’s ownership of Sankaty is not in doubt, at least not as recently as this past December, according to Romney’s 2011 estimated tax return. So Gibbs appears to be on solid ground that Romney has the company now. We asked the Romney campaign if they could give us more current information on the status of Sankaty High Yield Asset Investors, but they did not respond.

In an interview with Radio Iowa on Monday, Romney deflected the issue, saying his foreign investments are in a blind trust.

"I don’t manage them. I don’t even know where they are," Romney said. "That trustee follows all U.S. laws. All the taxes are paid, as appropriate. All of them have been reported to the government. There’s nothing hidden there."

As for Gibbs’ other assertion that Romney has failed to disclose his stake in Sankaty seven times, that also is largely accurate. We counted six disclosure forms where Romney made no reference at all to the Bermuda corporation. Those include his filings in Massachusetts when he was running for governor or holding office and his federal disclosures for his presidential bids.

The seventh appears to be his 2001 disclosure, which lists Sankaty High Yield Asset Investors LLC. Note the slight difference in those three letters -- LLC instead of Ltd. The LLC, a limited liability corporation he named on the form, is based in Delaware. The offshore corporation by the same name ends in Ltd. and there is no mention of it until Romney’s lawyers began amending his disclosures this year.

There is some question whether he was required to disclose this asset. In 2003, on the eve of running for governor, he put Sankaty into a blind trust. Thereafter, he disclosed the presence of the trust and might not have been required to say what was in it. It is also unclear whether the nominal value of Sankaty would be high enough to warrant disclosure.

In 2011, its value was $10,432. However, as the Associated Press pointed out, that could well ignore the potential income that might flow through the fund. It is possible for investments made many years ago to produce over $1 million in payoffs that suddenly appear on the books.

Our ruling

Obama campaign adviser Robert Gibbs said Romney owns a Bermuda-based corporation and that he failed to disclose his ownership seven times.

The documentary evidence indicates Gibbs is right that Romney owned it when he filed his estimated tax return in December and that he did not disclose it earlier. The Romney campaign has not said the statements are wrong.

We rate Gibbs claim True.
UPDATE -- We may have had the lyrics to Kokomo in our heads ("Bermuda, Bahama, come on pretty mama...") because twice in this article we referred to the Bahamas when we meant Bermuda. We've corrected the mistakes, although we still can't get the song our of our head.

About this statement:

Published: Tuesday, July 10th, 2012 at 3:59 p.m.
Subjects: Candidate Biography, Corrections and Updates, Taxes
Sources:
CNN, State of the Union with Candy Crowley, July 8, 2012

Vanity Fair, Where the Money Lives, Nicholas Shaxson, August 2012

Associated Press, Assets Offshore Raise Romney Wealth Questions, July 4, 2012

Politico, Robert Gibbs, Dan Senor duke it out on disclosure,Tim Mack, July 9, 2012

Reuters, Obama Team Targets Romney over Taxes, Republican Call Foul, Tabassa Zakaria, July 8, 2012,

Talking Points Memo, Romney, Obama Campaigns Duel Over Offshore Accounts, July 8, 2012

Obama Campaign, Ben LaBolt: Mitt Romney’s Offshore Bank Accounts, video

Radio Iowa, Romney Calls Obama Tax Plan a ‘Job Killer’, and Audio, July 9, 2012

TPM, Romney: I Didn’t Even Know About That Bermuda Company!, July 10, 2012

Boston.com, Romney’s 2011 estimated tax return

Massachusetts Democratic Party, Romney’s Disclosure Forms - 2001-2007

Open Secrets.org, Romney: Personal Finance Disclosures,

Securities and Exchange Commission, Sankaty Ownership Document, March 14, 2006

GoBig Network, Sankaty High Yield Asset Investors, LLC Profile,
Written by: Jon Greenberg
Researched by: Jon Greenberg
Edited by: Bill Adair



http://www.politifact.com/truth-o-meter/statements/2012/jul/10/robert-gibbs/democrats-say-mitt-romney-failed-disclose-offshore/ 

Bermuda, Jamaica...We Demand the Truth Mitt Romney 11JUL12

IF rich people use their money to create jobs in the U.S. why is mitt romney's money in Bermuda, the Cayman Islands and Switzerland? With the nation struggling to recover from the recession a patriotic American, especially a rich one, ESPECIALLY one who wants to be president, should be investing his money in companies creating jobs in the U.S., not hiding it overseas. mitt romney needs to come clean about his finances and release more than one year of tax returns so the American people can see if the candidate who campaigns for benefits and protections of rich job creators actually practices what he preaches. Click the link to sign the petition...

Pop quiz: Who was the first presidential candidate to disclose their tax records?

I'll give you a hint, odds are you're familiar with his son.

It was George Romney, Mitt Romney's father.

George Romney released 12 years worth of tax returns to the American people when he ran for president. Since then, presidential candidates -- Republicans and Democrats -- have followed his lead and released multiple tax records for public scrutiny.

All presidential candidates, except one.

Mitt Romney has only released one year of records after persistent pressure. It raises the question: What does Mitt Romney have to hide?

Voters deserve to know.

Sign our petition demanding that Mitt Romney release his tax return to the public -- and we'll deliver every signature we gather directly to Romney's campaign HQ in Boston in front of the press.

Romney has some explaining to do:

• Romney admits he has huge amounts of money in offshore bank accounts -- but won't say how much money, how many accounts, or where they all are
   
• Vanity Fair reports that Romney set up shell companies in Bermuda and tax shields in the Cayman Islands and Swiss Bank accounts
   
• And just this week, Romney's campaign said it was "unseemly and disgusting" for people to scrutinize his tax returns and business holdings

Unseemly? Disgusting? It's the same thing every presidential candidate has done since 1968. Everyone except Mitt Romney. So, we have to ask: What's he hiding?

Tell Mitt Romney to come clean with the American public.

Thank you for everything that you do.

-Michael

Michael Langenmayr, Political Director
Democracy for America

How Offshore Tax Havens Save Companies Billions 17MAR11

JUST another example of how corporate greed is hurting the American economy, further enriching the wealthy, the CEOs, while doing nothing to create jobs here, or in the countries they are using to avoid paying American taxes. This is not what the gop and the tea-baggers want us to know about, they prefer to continue their propaganda campaign making corporate America the victims of high taxes here in the U.S. When will the American people wake up!?!?!??

Listen to the Story

Fresh Air from WHYY

[19 min 50 sec]

John Cogill/AP

Employees at Google's Dublin office relax underneath the Irish-themed Google logo. Shifting most of its overseas profits through the Dublin office has saved Google billions in taxes.

The top corporate income tax level in the United States is 35 percent. In the United Kingdom, it's 28 percent. But in Ireland, it's only 12.5 percent, and in Bermuda there's no corporate income tax at all. That means multinational companies that shift their earnings through Ireland or Bermuda can save billions of dollars in taxes each year.
On today's Fresh Air, Bloomberg News reporter Jesse Drucker, who has written extensively about corporate tax-dodging, explains how companies like Google, Pfizer, Lilly, Oracle, Facebook and Microsoft have managed to reduce their tax rates by hundreds of millions — and in some cases, billions — of dollars by taking advantage of offshore tax havens.
In October, Drucker reported that Google had saved $3.1 billion in taxes in the past three years by shifting the majority of its foreign profits into accounts in Ireland, the Netherlands and Bermuda using financial techniques called "the Dutch Sandwich" and "the Double Irish" arrangement. Basically, he says, Google credited its Irish office with the majority of its non-U.S. sales revenue — and then shuttled that money through various subsidiaries located in Ireland and other countries to save billions in taxes.

More by Jesse Drucker in 'Bloomberg News'

Dodging Repatriation Tax Lets U.S. Companies Bring Home Cash

Google 2.4 Percent Rate Shows How $60 Billion Lost To Tax Loopholes

Tax 'Shenanigans' Turn U.S. Sales To Foreign Income With Billions Offshore

U.S. Companies Dodge $60 Billion In Taxes With Global Odyssey

Exporting Profits Imports U.S. Tax Reductions For Pfizer, Lilly, Oracle

"You have an Irish operating company out there selling ads — they actually have real employees in Dublin," he explains. "They make payments to a Dutch subsidiary with no employees, which in turn makes payments to a Bermuda-headquartered Irish company with no employees. And the result of all of this is that it all helps to cut about $3 billion in Google's income taxes in the last three years."
Other companies have also been able to cut hundreds off their tax bills by shifting or licensing their earnings overseas. Forest Laboratories Inc., the manufacturer of the antidepressant Lexapro, cut its total income tax bill by more than a third last year by allocating income through various subsidiaries.
"They're a company that does almost 100 percent of its sales here in the U.S., they have almost 100 percent of their employees in the U.S., they're headquartered in New York City and yet the majority of their profits show up overseas, most of them attributed to a mailbox in Bermuda," Drucker says. "An economist at Reed College estimated that the U.S. is losing $60 billion a year in federal tax revenue [from all U.S. companies], but she's actually in the process now of revising that estimate and has arrived at a figure closer to $90 billion."

Rozalia Szabo/Courtesy of Jesse Drucker

Jesse Drucker is a reporter on the projects and investigations team at Bloomberg News. He previously wrote for The Wall Street Journal, The New York Observer and The Star-Ledger.

Technically, companies aren't avoiding paying U.S. tax when they shift their income abroad, Drucker says.
"You're merely deferring it for as long as you keep it outside the U.S.," he says. "These are indefinitely reinvested earnings in your non-U.S. operations. When you bring [earned income] home you're supposed to pay U.S. tax minus a credit for the income taxes you've already paid overseas. But companies have a number of techniques for bringing back profits without paying the tax."
One technique, Drucker says, is lobbying the federal government for a tax holiday — a period of time when companies can bring back offshore profits one time at a reduced rate. Advocates of the plan say it would function as a non-government stimulus plan because as much as $1 trillion could flow back into the United States.
"It sounds reasonable," Drucker says, "but I think there are two important things to say about that. No. 1 is that companies, according to the latest data from the Federal Reserve, are sitting on a record pile of cash — $1.9 trillion. So to the degree the economy is challenged right now, it's not from lack of cash at the disposal of companies. And there's a fair amount of academic research on what happened [after the last tax holiday, in 2004]. And the result is that there was very little hiring and very little investment that went on as a result of the $300 [or so] billion that came back. Most of that money seemed to buy back stock."

Related NPR Stories

Crisis In The Housing Market

Wall Street Finds Lucrative Market In Tax Liens

Offshore Tax Evaders Take Advantage Of IRS Amnesty Nov. 18, 2009

Tax Cheats Look Offshore April 13, 2008

David Cay Johnston On How The Rich Get Richer Jan. 3, 2008

Jane Penner, a spokeswoman for Google, told Bloomberg News the technology giant's practices "are very similar to those at countless other global companies operating across a wide range of industries." She declined to address the particulars of its tax strategies. Frank J. Murdolo, Forest Laboratories' vice president of investor relations, declined to comment on the company's tax planning, Bloomberg News said.

---

Interview Highlights
On transfer pricing
"Transfer pricing is the law of the land, not just in the U.S. but in countries throughout the world. It's the mechanism for allocating income through various subsidiaries around the world and every major country in the world. And it essentially relies on the assumption that two subsidiaries of the same company can bargain with each other and strike a price that's equivalent to an arm's length transaction that goes on between two unrelated companies in the real world. There are a number of people out there that think that makes this an unenforceable system — that you cannot have two subsidiaries of the same company dealing with each other at arm's length. In other words, there's no way that two subsidiaries of the same company could interact with each other the way two unrelated parties would deal."
On the American Jobs Creation Act
"In 2004, Congress passed the American Jobs Creation Act, which permitted countries to bring back profits from offshore one time at a reduced rate — paying 5.25 percent instead of 35 percent. And companies brought back about $312 billion that qualified for the break, and there's a fair amount of literature that shows very little job creation went on as a result of that. And most of that money was used to buy back stock. And companies right now are lobbying for a repeat of that break."
On remaining competitive
"The U.S. and other countries need to create climates that are conducive to business. That's absolutely true. As long as this system exists where companies have the ability to shift profits, they're going to take advantage of that. I guess the question is: Do we want to have a system where your taxable income has so little relation to where the real-world economic activity takes place and, more broadly, the question it raises about the fairness of the tax system — the result of this is that it shifts the tax burden to the people that don't have the ability to do this, i.e., the 99 percent of Americans who don't have access to sophisticated tax advisers and also to the companies that are not multinational."